Tough times at home mean Europeans must grow abroad, analyst says

BILBAO, Spain – The European auto market will remain tough in the second half of 2010, which means European automakers will need to look abroad for growth, Arndt Ellinghorst, global head of automotive research at Credit Suisse, told the Automotive News Congress last week.

Ellinghorst said Greece's financial crisis will limit the amount of disposable income people have in Europe, which will affect new-car sales here for years.

That being said, he believes premium automakers will be better off this year than mass-market carmakers.

“I see brands such as BMW and Mercedes recovering better due to the growth of the U.S. market and the recovery of fleet sales in Europe,” he said.

Scrapping incentives offered last year by Europe's largest economies distorted the European new-car market. Private buyers where drawn to showrooms by the thousands of euros in incentives offered to those who traded in their older models for newer, more fuel-efficient cars.

Due to the scrapping programs, European sales declined just 1.6 percent last year, but fleet sales decreased 29 percent as many companies decided to keep their fleet cars for a longer period.

“Sales to private customers grew 18 percent last year, benefiting volume automakers. This year the mix will tend to normalize, thus benefiting premium automakers,” he said.

That trend already can be seen. BMW, Mercedes-Benz and Audi announced plans in June to add workers and shifts at their German plants to meet rising demand for their cars.

Cool on EVs

Ellinghorst is convinced eletric car sales will account for about 4 pecent of the global market by 2020, well below Renault-Nissan CEO Carlos Ghosn's forecast that 10 percent of global new-car sales will be EVs by then.

While he does not see a huge uptake for EVs, Ellinghorst said those who believe in an electric future should consider buying shares in Chinese automaker BYD Co.

BYD's profile rose after U.S. billionaire investor Warren Buffet bought a 10 percent stake in the company because of its expertise in electric cars and batteries. In addition, Daimler AG and BYD signed an agreement in May to develop electric vehicles in China.

“BYD's stock is terribly expensive right now, but if China goes to EV, it is a stock to get,” he said.

Conversley, Ellinghorst is not bullish on the initial public offerings planned by General Motors Co. and Chrysler Gloup LLC.

“I expect GM will have a great IPO and then the stock will fall,” he said. “The same will happen for Chrysler.”